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Coronavirus vaccine hope signals shift from tech stocks towards market laggards
- Investors have awaited news of a vaccine breakthrough that will kick off a rotation in equity markets, meaning different stocks will come into favour
- Sectors such as travel, retail, energy and financials that have struggled in the pandemic are expected to rebound while demand for tech stocks wanes
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As the dust settles on the US election, investors’ attention is returning to market fundamentals. Economic growth and corporate earnings will take the place of politics as market drivers.
The Covid-19 economic downturn has been unlike previous recessions caused by factors such as debt bubbles, and has continued to weigh on economic activities and corporate earnings in most sectors. Medical solutions, particularly breakthroughs in vaccine development, have become the determinant of stock market performance.
Amid the dramatic rally from the nadir in March, performance has diverged between sectors. Technology and health care companies were the major contributors to the resurgence, given the greater confidence in their corporate earnings during the pandemic. However, many other sectors have not reclaimed their losses as their corporate earnings remain depressed.
This has started to change in the past two weeks as a string of good news regarding vaccine development has come to light. The high effectiveness of those vaccines has inspired hope that the pandemic can ultimately be conquered, with economic and social activities eventually returning to normal.
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Consequently, the 10-year US Treasury yield jumped 10 basis points to 0.92 per cent on November 9, prompted by the prospect of recovery in the medium term.
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